2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.
2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.
2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.